JPMorgan and UBS strategists foresee minimal upside for European stocks as the Stoxx Europe 600 Index is projected to finish 2026 just 1% above current levels. HSBC Holdings stands as the most bullish forecaster with a 670-point target, while Bank of America remains the most bearish, predicting a potential 9% decline.

The Middle East conflict has driven European stocks to rebound from near-technical correction territory, but higher energy costs continue to pose fundamental challenges. UBS strategist Gerry Fowler notes that short-term market gains appear disconnected from underlying fundamentals as long as the Strait of Hormuz remains closed.

Consumer sectors already show war-related weakness, with luxury giants like LVMH and Hermes delivering negative updates. Even ASML, despite raising its forecast, disappointed investors. Analysts have yet to fully incorporate the war's impact on earnings, with Societe Generale noting that rising input costs will be factored in over time.